Recently, the US foreign capital published a latest research report from Guoju, pointing out that although Huaxinke has estimated that its fourth-quarter revenue will drop by at least 20% in the quarter, and the prices with customers have been finalized next year, the prices of the accumulated ceramic capacitor and chip resistors will average less than 20% of the quarterly decline.
However, the brokerage expects that channel destocking is happening, which is an important step to get the inventory level back to a healthy level before demand rises in the second quarter of next year. The entire destocking process will be completed in the first half of next year. We are still optimistic about the prospects of Guoji and give Guoji an additional rating, with a target price of 700 yuan.
report pointed out that when participating in the brokerage industry forum held by the brokerage last week, Huaxinke pointed out that looking forward to the fourth quarter, Huaxinke estimated that revenue in the fourth quarter will drop by at least 20% due to customers' downward revision of demand outlook. Huaxinke has completed the price of price for the first quarter of 2019 with customers. The prices of MLCC and chip resistors on average fell within 20% of the quarter. After the price adjustment in the first quarter, Huaxinke estimates that the price in the second quarter will remain stable.
Huaxinke management believes that although prices fall in the next quarter, profitability will remain at a high level, and the positive view of the overall MLCC market has not changed, because the structural growth momentum brought by automotive, 5G and other fields is still intact, and due to the expansion of the MLCC industry, the delivery time for MLCC equipment is still long.
Regarding the impact of Huaxinke's bargaining on Guoju and the Greater China market, the report pointed out that this news was negative for Guoju and also surprised the broker because it was previously believed that Huaxinke should be a follower of prices in the Greater China market, not a maker. However, in the third quarter and earlier, every manufacturer in Greater China has seen a sharp increase in price, and even for similar products, the price increases remain inconsistent. Therefore, not every manufacturer needs or must respond to Huaxinke's decision to bargain.
US foreign capital further pointed out in the report that the bargaining power of major manufacturers (including Taiwanese and international manufacturers) is mostly different because the size of the manufacturers, customer composition, logistics support and product quality are all different. While demand looks to weaken further in recent weeks as more customers adopt a more conservative inventory strategy, the broker believes that destocking is happening, and it is an important step to get inventory levels back to healthy levels before demand rises in the second quarter of next year. Therefore, although what Huaxinke said seems negative to prices, it also provides an indicator that can quantify the impact of overall economic uncertainty on the passive component market in Greater China. The report
said that the brokerage firm still gave Guoju an additional rating because it believes that under the disciplined expansion of production capacity, Guoju's MLCC and chip resistors still have strong bargaining power. Even if the recent inventory correction will lead to a shipment recession, the brokerage still expects inventory destocking to be completed in the first half of next year and return to a healthy supply and demand environment, which will also bring strong quotations and operating benefits to Guoju.
Therefore, the brokerage firm remains bullish on Guoju’s profits, but recently it has slightly adjusted its profit forecast for Guoju in 2019 to reflect the recent market short atmosphere. As for the above-mentioned evaluation and target price prediction risks, they are caused by the reversal of the price of MLCC and chip resistors.
Articles and pictures Source: Xintoutiao
